Baker Institute expert weighs in on Mexican energy reform

EXPERT ALERT

David Ruth
713-348-6327
david@rice.edu

Jeff Falk
713-348-6775
jfalk@rice.edu

Baker Institute expert weighs in on Mexican energy reform
Morales: Priorities and interests of private investors will test the new fiscal regime  

HOUSTON – (June 19, 2014) – Mexico’s energy reform, approved by Mexico’s Congress in December, has attracted great interest from global firms and investors and raised questions over the role of Pemex, the country’s longtime state oil and gas enterprise.

ISIDRO MORALES

The reason is clear, according to Isidro Morales, a contributing expert and scholar in the Mexico Center at Rice University’s Baker Institute for Public Policy: Mexico was one of the very few countries in the world where a state energy monopoly prevailed in the hydrocarbon and electricity domains, and private participation was all but banned.

Morales outlined his insights in a new issue brief, “Will Pemex Remain ‘First Among Equals’ Under Mexico’s Upcoming Petroleum Legislation?” Morales, who is also a senior professor and researcher at the School of Government and Public Policy at the Santa Fe campus of the Monterrey Institute of Technology and Higher Education, is available to comment on these and other developments related to Mexican energy reform.

According to legislation pending congressional approval, Pemex will be transformed from a state monopoly to a public “productive” firm, meaning its main goal will be the same as any private energy company’s: to efficiently and effectively optimize profits, Morales said. “The hundreds of pages of text confirm a major liberalization of the energy industry, though in a policy scenario where Pemex seems to remain a major actor in the short- to midterm evolution of the nation’s energy sector,” he said.

Morales said Mexico will not simply rely on market mechanisms to attract investors from all nations to explore and develop the country’s huge untapped oil and gas resources.

“It is also clear that Mexico’s state agencies will not be mere regulators when the state’s energy monopoly ends,” he said. “The Department of Energy, the National Hydrocarbon Commission, the Department of Treasury, the Department of Economy, the Bank of Mexico and the president himself will remain key actors in deciding the future development of upstream hydrocarbon activities, which will continue to be strategic domains under the control of the state, according to the constitutional amendment. Pemex will remain the privileged state operator supporting exploration and production in most of Mexico’s onshore and shallow-water fields.”

Morales thinks these state agencies could bias the playing field toward Pemex or any other public enterprise against private investors. “The priorities and interests of private investors will test the new fiscal regime,” he said.

For more information or to interview Morales, contact Jeff Falk, associate director of national media relations at Rice, at jfalk@rice.edu or 713-348-6775.

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Follow the Baker Institute Mexico Center via Twitter @BakerMexicoCtr.

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Related materials:

Morales biography: http://bakerinstitute.org/experts/isidro-morales.

Baker Institute Mexico Center: http://bakerinstitute.org/mexico-center.

Founded in 1993, Rice University’s Baker Institute ranks among the top 15 university-affiliated think tanks in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blogs.chron.com/bakerblog.